America’s Great Service Crisis

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Even before the pandemic hit the U.S. market, customer service has been on a decline. Looking back over the past year and half, America\’s “Great Service Decline” has continued, accelerated by a number of disruptive post-Covid issues. Check out our podcast Platinum Service Turns to Tin with Robin Lewis for an interesting conversation!

Pre-Covid Service Shifts

Let’s take a look at a brief history of the service decline.

  • Retailers and brands have been steadily reducing effective in-store employee training and some have turned to online self-training technologies.
  • Focus on the ecommerce shopping journey has caused a shift from highly personalized service to autonomous service.
  • Consumers have adopted many self-service features. For example, shoppers can look up prices or product information while in stores using their own mobile devices.
  • Amazon has led the pack in terms of customer satisfaction including lenient (and mostly free) return policies, prompting other retailers to follow suit, eliminating the need for personal service in processing returns and upselling with new options.
  • Tech-enabled services have taken away the human interaction that used to be a hallmark of the retail industry.
  • The adoption of chatbots has been highly successful and well received by customers to handle a plethora of customer issues. But AI distances the human element of service and only works well with commonly shared problems.

Tech/High Touch Dance

So, tech-enabled services have allowed many retailers to become more efficient when it comes to solving standardized customer problems. But serving customers in a digital economy has become a delicate dance. The in-store premium standard of customer service continues to slide, and technology is both a boon and a bust. Let’s take chatbots as a bellwether of the complexity of customer interface experiences. A 2020 Aspect consumer survey indicates a 10 percent increase in customer sentiment around automated chatbots. For complex issues however, 77 percent of respondents prefer speaking to a live agent.

[callout]Retailers need to balance how much autonomy they give to customers to solve their own problems without neglecting the importance of building trust and personal relationships.[/callout]

AI tools are here to stay and have succeeded in raising customer expectations in terms of how quickly problems can be solved.  But that technology does not replace the human touch. Retailers need to balance how much autonomy they give to customers to solve their own problems without neglecting the importance of building trust and personal relationships.

Gen Z on Service

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Gen Z’s take on service is vastly different from previous generations, especially boomers and Gen Xers who have grown up with personal service models. A 2018 survey conducted in partnership with the International Council of Shopping Centers (ICSC) reports the desire for good customer service for Gen Z ranks 7 out of 9. When making a purchase, service consideration is a low 16 percent factor for Gen Z.

The view on what great service is can be perceived differently by generations. Case in point: A shopper is approached by a sales associate with a smile and a friendly question, “Are you looking for something special today?” A boomer would typically consider this to be positive service, but a Gen Z might find it creepy.

A recent Gartner survey shows that 62 percent of millennials and 75 percent of Gen Z customers use third-party guidance to self-resolve problems either all or most of the time, even when they have the option of contacting customer service. These young customers are solving issues with YouTube, Google search and Reddit (among others). While this shift is not necessarily a bad thing, retailers should be aware of the change in consumer behavior so they can better address common service issues.

As more tech-savvy Gen Zs enter the workforce and become a larger part of consumer purchasing power, opinions about what comprises great customer service will shift away from the human touch to more automated, self-reliant initiatives.

Covid-Related Service Accelerants

Several factors have accelerated the service shift throughout the pandemic. As lockdowns came into play in spring 2020, the number of retailers offering curbside pickup and buy-online-pick-up-in-store (BOPIS) grew exponentially. Customers were grateful for the ability to limit interactions with store personnel and quickly became appreciative of contactless service that brimmed with efficiency. In-store technologies helped to reduce contact as well, including self-checkouts, mobile purchases, and order ahead.

From groceries to fashion, the consumer quickly shifted to digital across many shopping categories. The shopping journey became expeditious and targeted, supported by digital tools. Many retail industry publications and pundits have touted higher customer service since the pandemic with the advent of curbside, BOPIS, and better integrated technology in general. However, the pandemic has not really raised the level or even the proliferation of service, but rather has shifted it to a more autonomous experience and at the same time created new service expectations.

  • Lack of Staff

As physical stores began to slowly reopen and welcome customers back in 2021, many retailers faced the new challenge of operating with a reduced staff due to a shortage of workers. A smaller staff often means an overworked staff stretched thin and sometimes inadequately trained, leading to worker turnover and frequent customer service issues. Frazzled sales associates can also become edgy with Covid constantly lurking in the background along with anxious and demanding customers in stores, on the phone and in email correspondence. In some cases, sales associates might not be supported by the organization to give them the bandwidth to deal with customers’ problems or provide even basic customer service. All these factors add up to a workforce that is unfulfilled, underpaid, and unrecognized — and therefore likely to leave the job.

  • Less Stock Available in Stores or Online

Many retailers are trying to reduce inventory holdings, especially fashion apparel and accessories companies. The U.S. Census Bureau has shown 2021 inventories across all retail segments down from January through April between 5 and 7 percent (compared to last year). May was the first month inventory was flat to last year. Apparel and accessories have been down between 6 and 13 percent and department store inventories have been down as much as 11 percent in some months this year.

As demand has risen, supply has diminished leaving a disequilibrium in supply and demand. And as much as I’m a fan of the D2C (direct-to-consumer) model, retailers cannot expect the customer to hold inventory for them. In today’s model, if the store does not have stock on hand, they will order stock from the vendor to be shipped directly to the customer. This process works great when the exact product is shipped by the vendor to the customer. However, when the customer needs to see different colors or try various sizes and the stock does not exist in stores, retailers are asking the customer to buy multiple items from the vendor which are direct shipped. Now the customer has paid for unwanted inventory of multiple products and will return most of them. For example, if a customer is looking for a special occasion dress but cannot find her size in the store, the retailer can have several vendors ship different styles to the customer’s home to try on. The customer ends up buying four dresses and returning three, carrying the inventory costs of the dresses she doesn’t want.

Having customers purchase multiple items from a vendor because the retailer does not have the stock does not make sense and puts the burden of inventory purchasing on the customer. In the past, as a service, retailers would order out-of-stock items for customers and have them sent to the store where customers could try them on, supported by customer service from the sales associate. In this case, the retailer pays for the inventory. A D2C model can be successful but should not be a short-term remedy for retailers’ current out-of-stock position.

  • Unhappy Customers

Since customer demand for new things is high, especially for fashion goods, the retailer is in an advantageous position to be in control. Yet, a high demand economy has increased the breaking point when customers give up; they will typically endure bad service for a longer period of time before they walk away in fear of not finding product elsewhere. According to Aspect Conversion Research and Statisca, the share of customers who stopped doing business with a retailer due to poor customer service has gone from 54 percent in 2017 down to 40 percent in 2020. On the surface it would seem positive for retailers to retain customers, even with poor service, but the reality is these customers are shopping by necessity and one could argue in a state of dissatisfaction.

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  • Supply Chain Issues Perpetuate Out-of-Stock

Supply chain issues in the industry including scarcities of raw materials, unexpected surges in demand for some products, higher freight costs and port congestion has been widely reported. Add to this the shortage of workers and distribution networks not running at full capacity, and an otherwise efficient supply chain can be crippled. Supply chain issues, combined with already low inventory in stores drastically reduces the chances of having the right product in the right place at the right time with the right price. This is a simple service breakdown for the industry and the customer is the one who suffers.

A New Service Culture

Over the next year, the customer service model will continue to be tweaked, shifted and shaped to meet customer demands. New customer service enabling technologies will become mainstream. A new workforce will have to be recruited and trained, and the sales associate role will need to be better paid and supported to halt widespread resignations.

Kroger, recently announced a new training program called Fresh Start with Axonify, and will focus on building employee engagement with staff and increasing retention. Using AI for merchandise planning and allocation along with more efficient supply chains will help optimize the right stock in the right stores. And retailers need to anticipate needs of an ever-evolving consumer. The wild card is what may unfold with a global health crisis, that at this point, has become hard to predict.

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